Inverse Square Falloff is a different type of light falloff that most closely replicates the behavior of light in the real world. It causes light to be very bright when closest to its source, and gets dimmer very quickly as it moves away. Inverse Square Falloff is activated in the properties of a light, shown in the Details panel, by expanding the advanced properties found under the Light category.
Using Inverse Square Falloff also changes the fundamental behavior of a light. Firstly, Brightness changes from being an arbitrary value to being calculated in lumens. This means that a light with Brightness of 3 using Exponential Falloff (default) will appear bright, but if you switch to Inverse Square Falloff, the light is only 3 lumens, meaning it is practically invisible.
Light Radius also changes when using Inverse Square Falloff. When using default Exponential Falloff, the radius is used like the extents for light travel, with the light falling off as it approaches the radius. When using Inverse Square Falloff, radius works as more of a clamp, having no effect on how far the falloff actually goes. This means you could set the radius very high for the most realistic light falloff. However, because of the problem of overlapping Stationary Lights, you will generally not want to do this.